The Next Generation Of Video Game Consoles Could Be The Beginning Of GameStop's Death
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Predictions about the death of video game retailer GameStop have been with us for at least a decade. There have been many reasons for such predictions, ranging from the emergence of digital downloaded games gobbling up market share to declines in retail stores generally. But there are two recent new headwinds that might frankly be the end of this once ubiquitous franchise as we know it.The first headwind is one common to all kinds of retailers currently: the COVID-19 pandemic. The pandemic is actually almost certainly worse for GameStop compared with retailers for other industries. As noted above, sales for the industry have long been trending towards digital downloads. Yes, there are still those out there who insist on buying physical media games, and in many cases there are good reasons for doing so, but the truth is that market was shrinking steadily for a long, long time. With the pandemic both shuttering many retail stores and keeping scared consumers out of those that remain open, the digital market share in the gaming industry has grown quickly. Whether anyone will want to go back to buying physical copies of games, new or used, is an open question.All of which might not ultimately matter, as the other headwind is the next generation of consoles being released with options for no built in disc drive at all.
The latest quarterly earnings report from GameStop doesn't show much sign of a turnaround for the long-troubled game retailer. Sales were down 26.7 percent year over year for the April through June quarter. Even accounting for permanent store closures and COVID-related reduced operating hours, so-called comparable "same-store" sales were still down 12.7 percent year over year. GameStop's already depressed stock is down nearly 8 percent on the news, as of this writing.GameStop still publicly sees an "opportunity to capitalize" on the upcoming release of new Sony and Microsoft consoles, which could help turn its business around in the short term. But there's some reason to believe the coming generation of consoles could actually make GameStop's long-term prospects worse, thanks to console options that get rid of disc drives entirely.During a recent earnings call, CEO George Sherman tried to spin this in the opposite direction, pointing out that the new consoles include an option for a disc drive as a reason for optimism. A huge chunk of GameStop's money is made reselling used games that are marked up considerably. If the best a cheerleader for the company can muster is pointing out that, at least for this generation, some of the consoles will still have drives... well, that isn't great.Especially when you put this all in context. Both Microsoft's Xbox and Sony's PlayStation forthcoming consoles have options for discless devices that are priced significantly less than the alternative. That represents yet another reason why some gamers, who might not have gone all digital otherwise, will be jumping ship. Between the virus pushing more gamers to download games digitally, lower priced consoles in the middle of an economic downturn, and the general trends that pre-date the pandemic, the analogies some are drawing to GameStop's future aren't pretty.
Sherman confirmed in the earnings call that GameStop will sell these disc-drive-free consoles in its stores, a move akin to a world where Tower Records decided to sell iPods as its physical album sales cratered.Yikes.Now, none of this suggests that every gamer everywhere is ready to give up discs. Nor should this be taken to indicate that retail game stores are going to become fully extinct. In fact, I don't think the Tower Records analogy is the best that can be drawn, even if we stay in the music space. Instead, it is beginning to feel inevitable that GameStop, or other companies, will be become like modern day record stores: there to cater to the niche market of those that want CDs and vinyl, with all of the nostalgia that's as important for buyers as the product itself.But it sure as hell won't be the GameStop of the last two decades.
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